The Budget could leave many property investors and landlords between a rock and a hard place according to a leading property management firm. Apropos, a UK-wide letting firm, thinks that the widely trailed rumours that the Chancellor is about to increase capital gains tax (CGT) and Corporation Tax (CT) in a move which would impact on all asset classes but hit the property sector particularly hard.
Many landlords and property investors have been incorporating their businesses and placing their portfolios into companies in a bid to avoid being hit by the potential rise in CGT, but they will, instead, simply be taxed more through the proposed higher increases in corporation tax.
There is speculation that the CGT changes will be introduced as early as the 3rd March to pre-empt any potential exit from the property market if the policy were to have delayed implementation. If the predicted change to the rate of CGT rises in the Budget to match tax rates, then higher rate taxpayers will see an increase from 28% to 40%.
On a property investment over ten years this would mean that the annual gain for landlords, second homeowners and investors would be between 1.9% – 2.2% per year. With a potential corporation tax increase from 19% to 24% then any expected savings from transferring assets into an incorporated entity would be lost.
David Alexander, joint Chief Executive Officer of apropos, commented:
“Nobody would deny that the Chancellor must find ways to recover revenues from the enormous debt incurred due to the pandemic. But raising taxes at the start of a recovery is a risky, and potentially harmful, way to fill the financial deficit. Landlords, second homeowners, and property investors are an easy target, but all tax rises come with the potential for unexpected consequences.”
“These changes might produce one-off upticks in tax but may encourage many more landlords, property investors, and second homeowners to transfer their investments elsewhere. The Chancellor not only risks killing investment in the UK property market and causing a shortage of homes for private renters but could create turmoil in the housing sector for years to come.”
David continued:
“Targeting a major asset class like property runs the risk of skewing the market away from property and into other, less punitively taxed, investments. The outcome, therefore, could be reduced revenues, fewer properties in the private rented sector, and a disaffected group of landlords, investors, and second homeowners who feel betrayed simply because of their desire to invest in property.”
“Equally, if these proposed increases in CGT and CT are implemented solely on long-term letting, second homeowners, and property investors without appropriate amendments to the existing, more favourable, tax regime for short term lettings and the furnished holiday lettings market then a serious anomaly will have arisen which could easily divert many properties toward the holiday market particularly this year with the predicted boom in staycations.”
David concluded:
“The housing market has held up well during the pandemic. Any substantial changes to the way in which the property sector is treated financially could have a seriously detrimental impact on its future viability. Given that we are in the midst of an unprecedented emergency it is essential that major tax changes are not implemented in the short term only to be regretted in the long term. The big risk is that the Chancellor ends up seriously damaging the private rented sector, fails to substantially increase the tax take, flattens the wider property market, and ultimately ends up hurting the prospects of homeowners, landlords and tenants.”
